[January 23rd, 2018] Tax Newsletter - Budget Law 2018
Amendments to the definition of permanent establishment (“PE”)
The Budget Law amends the PE definition providing the following:
Starting from the fiscal year following the one in progress at December 31, 2016 (i.e. from 2017 for taxpayers adopting the calendar year), for the purpose of computing the deductible interest expenses amount (threshold of 30% EBITDA), dividends received from controlled non-resident companies are excluded from the EBITDA calculation.
Realignment of higher values of goodwill, trademarks and other intangibles
The possibility to opt for the realignment (through the payment of a 16% substitute tax) for goodwill, trademarks and other intangible assets incorporated into the higher value of controlling participations included in the consolidated financial statements is also extended to controlling participations in non-resident companies, without PE. A measure of the Tax Authorities, to be issued within 180 days of the entry into force of the Law, will establish the implementation procedures.
Registration Tax
The Budget Law establishes that, for registration tax purposes, the taxation is exclusively carried out based on:
Web Tax
The Budget Law introduces a tax on digital transactions carried out by electronic means (“Web Tax”) for companies resident in Italy and permanent establishments of non-resident enterprises located in Italy that carry out more than 3,000 transactions in a calendar year. The tax, which rate is equal to 3%, is levied by the client at the time of the payment.
The services falling within the scope of this tax are identified by a Decree of the Minister of Economy and Finance to be issued by April 30, 2018. The rule will enter into force from January 1 of the year following the publication in the Official Gazette of the aforementioned Decree (i.e. presumably from January 1, 2019).
Tax regime for “qualified” participations
The 26% final withholding tax is extended to dividends received by individuals (not entrepreneurs) in relation to "qualified" participations - i.e. those representing more than 20% (2% in case of listed shares) of voting rights or 25% (5% in case of listed shares) of the share capital.
The provision apply to dividends received starting from January 1, 2018. However, the taxpayer can opt for the previous rule in relation to the distribution of dividends accrued up to December 31, 2017, if resolved from January 1, 2018 to December 31, 2022. The application of 26% substitute taxation is also provided for capital gains deriving from the disposal of the above participations. This provision apply to capital gains realized from January 1, 2019.
Dividends from “blacklisted” countries
The Budget Law provides that dividends distributed by entities located in “blacklisted” countries are taxable in the hand of the Italian company for 50% of their amount, if it is demonstrated that an industrial or commercial activity is actually carried out, as the principal activity, in the state of establishment.
The Budget Law also introduces the rule according to which profits realized when the distributing company’s residence jurisdiction did not qualify as a “blacklisted” country are deemed to be distributed first.
Tax deadlines
The deadline for the filing with the Tax Authorities of corporate tax, IRAP and withholding tax agents (770 Model) returns is hereby set at October 31.
The synthetic reliability indices(so-called "ISA") apply starting from the fiscal year in progress at December 31, 2018.
VAT provisions
Neutralization and adjustment of VAT rates increases
The 2018 increases in VAT rates are neutralized, while the increases in VAT rates for 2019, 2020 and 2021 are adjusted.
Electronic invoicing
Invoices issued from January 1, 2019 onwards are subject to the electronic invoicing obligation between both VAT taxable subjects (B2B) and final consumers (B2C).
Abolition of the so-called “Spesometro”
With effect from January 1, 2019, the communication of the data of the issued and received invoices (so-called "Spesometro") is abolished.
Reporting of data on cross-border transactions
As from January 1, 2019, data relating to the supply of goods and services performed and received towards/by taxpayers not established in the territory of the State (so-called cross-border transactions), with the exception of the received customs bills and issued/received electronic invoices, must be electronically filed with the Tax Authorities.
VAT Groups
The Law provides that transactions carried out by a head office or a PE belonging to an Italian VAT Group towards its PE or head office located in another country are deemed to be transactions performed or received by the VAT Group towards/from a person not belonging to the VAT Group. This provision applies to transactions carried out from January 1, 2018.
Tax Benefits
“Super” and “hyper-amortization”
The “super-amortization” discipline is also extended to purchase of new tangible assets done from January 1, 2018 to December 31, 2018 (or until June 30, 2019, provided that by 31 December 31, 2018 (i) the order is accepted by the seller and (ii) an advance payment of at least 20% of the purchase price is paid). For these investments, the increase of the tax base allowed as deductions is reduced to 30% (previously 40%) and vehicles as per art. 164, paragraph 1 of the Income Tax Code are excluded.
The “hyper-amortization” is extended in relation to investments performed until December 31, 2018 (or until December 31, 2019 provided that by December 31, 2018 (i) the relevant order is accepted by the seller and (ii) an advance payment of at least 20% of the purchase price is paid).
The related increase of 40% for intangible assets purchase is also extended for the same period and in its application perimeter.
Tax Credit for Training 4.0
To companies investing in training activities to acquire/consolidate the knowledge of technologies foreseen by the National Plan for Industry 4.0 in the fiscal year following the one in progress at December 31, 2017 (i.e. 2018 for taxpayers adopting the calendar year), a tax credit is recognized for an amount equal to 40% (and for a maximum amount equal to 300 thousand Euro) of the expenses related to the personnel cost for the period in which employees are involved in such training activities, to be agreed upon through company or territorial collective agreements.
Tax Credit for SMEs for listing
To Small and Medium-sized Enterprises (SMEs):
The Budget Law amends the PE definition providing the following:
- § even in case of a “significant and continuous economic presence in the Italian territory that has been arranged in such a way that it does not give rise to a physical presence in Italy” a PE is deemed to exist;
- § the PE is excluded in case of activities that, individually or collectively, are actually preparatory or auxiliary;
- § the “anti-fragmentation" principle is introduced, it is aimed at preventing that the activity is divided among several closely related companies for the sole purpose of not falling within one of the hypotheses that would constitute a PE, if considered together;
- § a person who (i) acts in the territory of the State on behalf of a non-resident enterprise and (ii) habitually concludes or participates in the conclusion of contracts that are regularly concluded by such enterprise without substantial changes, may give rise to an agency PE;
- § a person that exclusively or almost exclusively acts on behalf of one or more closely related enterprises do not qualify as independent agent.
Starting from the fiscal year following the one in progress at December 31, 2016 (i.e. from 2017 for taxpayers adopting the calendar year), for the purpose of computing the deductible interest expenses amount (threshold of 30% EBITDA), dividends received from controlled non-resident companies are excluded from the EBITDA calculation.
Realignment of higher values of goodwill, trademarks and other intangibles
The possibility to opt for the realignment (through the payment of a 16% substitute tax) for goodwill, trademarks and other intangible assets incorporated into the higher value of controlling participations included in the consolidated financial statements is also extended to controlling participations in non-resident companies, without PE. A measure of the Tax Authorities, to be issued within 180 days of the entry into force of the Law, will establish the implementation procedures.
Registration Tax
The Budget Law establishes that, for registration tax purposes, the taxation is exclusively carried out based on:
- § the intrinsic nature and legal effects of the single deed, regardless of the related deeds;
- § the elements that can be inferred from the deed itself, regardless of extra-textual and related deeds.
Web Tax
The Budget Law introduces a tax on digital transactions carried out by electronic means (“Web Tax”) for companies resident in Italy and permanent establishments of non-resident enterprises located in Italy that carry out more than 3,000 transactions in a calendar year. The tax, which rate is equal to 3%, is levied by the client at the time of the payment.
The services falling within the scope of this tax are identified by a Decree of the Minister of Economy and Finance to be issued by April 30, 2018. The rule will enter into force from January 1 of the year following the publication in the Official Gazette of the aforementioned Decree (i.e. presumably from January 1, 2019).
Tax regime for “qualified” participations
The 26% final withholding tax is extended to dividends received by individuals (not entrepreneurs) in relation to "qualified" participations - i.e. those representing more than 20% (2% in case of listed shares) of voting rights or 25% (5% in case of listed shares) of the share capital.
The provision apply to dividends received starting from January 1, 2018. However, the taxpayer can opt for the previous rule in relation to the distribution of dividends accrued up to December 31, 2017, if resolved from January 1, 2018 to December 31, 2022. The application of 26% substitute taxation is also provided for capital gains deriving from the disposal of the above participations. This provision apply to capital gains realized from January 1, 2019.
Dividends from “blacklisted” countries
The Budget Law provides that dividends distributed by entities located in “blacklisted” countries are taxable in the hand of the Italian company for 50% of their amount, if it is demonstrated that an industrial or commercial activity is actually carried out, as the principal activity, in the state of establishment.
The Budget Law also introduces the rule according to which profits realized when the distributing company’s residence jurisdiction did not qualify as a “blacklisted” country are deemed to be distributed first.
Tax deadlines
The deadline for the filing with the Tax Authorities of corporate tax, IRAP and withholding tax agents (770 Model) returns is hereby set at October 31.
The synthetic reliability indices(so-called "ISA") apply starting from the fiscal year in progress at December 31, 2018.
VAT provisions
Neutralization and adjustment of VAT rates increases
The 2018 increases in VAT rates are neutralized, while the increases in VAT rates for 2019, 2020 and 2021 are adjusted.
Electronic invoicing
Invoices issued from January 1, 2019 onwards are subject to the electronic invoicing obligation between both VAT taxable subjects (B2B) and final consumers (B2C).
Abolition of the so-called “Spesometro”
With effect from January 1, 2019, the communication of the data of the issued and received invoices (so-called "Spesometro") is abolished.
Reporting of data on cross-border transactions
As from January 1, 2019, data relating to the supply of goods and services performed and received towards/by taxpayers not established in the territory of the State (so-called cross-border transactions), with the exception of the received customs bills and issued/received electronic invoices, must be electronically filed with the Tax Authorities.
VAT Groups
The Law provides that transactions carried out by a head office or a PE belonging to an Italian VAT Group towards its PE or head office located in another country are deemed to be transactions performed or received by the VAT Group towards/from a person not belonging to the VAT Group. This provision applies to transactions carried out from January 1, 2018.
Tax Benefits
“Super” and “hyper-amortization”
The “super-amortization” discipline is also extended to purchase of new tangible assets done from January 1, 2018 to December 31, 2018 (or until June 30, 2019, provided that by 31 December 31, 2018 (i) the order is accepted by the seller and (ii) an advance payment of at least 20% of the purchase price is paid). For these investments, the increase of the tax base allowed as deductions is reduced to 30% (previously 40%) and vehicles as per art. 164, paragraph 1 of the Income Tax Code are excluded.
The “hyper-amortization” is extended in relation to investments performed until December 31, 2018 (or until December 31, 2019 provided that by December 31, 2018 (i) the relevant order is accepted by the seller and (ii) an advance payment of at least 20% of the purchase price is paid).
The related increase of 40% for intangible assets purchase is also extended for the same period and in its application perimeter.
Tax Credit for Training 4.0
To companies investing in training activities to acquire/consolidate the knowledge of technologies foreseen by the National Plan for Industry 4.0 in the fiscal year following the one in progress at December 31, 2017 (i.e. 2018 for taxpayers adopting the calendar year), a tax credit is recognized for an amount equal to 40% (and for a maximum amount equal to 300 thousand Euro) of the expenses related to the personnel cost for the period in which employees are involved in such training activities, to be agreed upon through company or territorial collective agreements.
Tax Credit for SMEs for listing
To Small and Medium-sized Enterprises (SMEs):
- § starting from January 1, 2018 an admission procedure for listing on a regulated market or multilateral trading system of a Member State of the European Union or of the European Economic Area, and
- § if admission to listing is obtained,
